Slow Train to Privatisation

Photos: Tehelka Archives
Photos: Tehelka Archives

Indian Railways, which carries about 23 million passengers and three million tonnes of freight on a daily basis, is famous for its ‘notso- good’ treatment of passengers due to late running of trains and poor quality of food and services. Even after being one of the largest providers of employment in the world, it is among the most cash-starved public sector organisations in the country. Indian Railways has always been one of the most talked about entities of the government. Any news regarding the railways sets the ball rolling for arguments and discussions in the ministry and the public.

Ever since the Modi-led nda government came to power, Indian Railways has been continuously in the limelight. The government has been hinting at the much awaited ‘railway reforms’ to bring the behemoth back on track. In order to extricate it from the mess, the Ministry of Railways constituted a committee under the chairmanship of economist Bibek Debroy.


While the government is seriously considering implementing the recommendations, the employees’ associations have rejected the report. “The report talks about privatisation and will damage the interests of passengers as well as the railway employees,” says Shiv Gopal Mishra, general secretary, All India Railwaymen’s Federation (AIRF), one of the two recognised employees’ associations of Indian Railways.

Among its many recommendations, the committee has suggested to ‘liberalising’ or rather privatising the operations of railways, including its crucial services such as Railway Medical Board, Railway Protection Force, educational institutions, etc. “The committee has failed to understand the intricacies of the railways. Rather than focussing on the core problem of improving the infrastructure and low tariff issues, the committee members think that entry of private players will cure it of all its ills,” Guman Singh, president, National Federation of Indian Railwaymen (NFIR) tells Tehelka.

The report says that the market economy is based on competition which could be of help to rail transport services. In other words, while track and infrastructure cannot be duplicated by the private sector, multiple operators can compete with each other, resulting in the lowering of costs.

“Competition between service providers in the railways lowers costs and prices, improves customer service, spurs innovation and optimises the resources of society,” reads the text from the report. However, the important point is that in India train tariffs are highly subsidised for passengers and no private party will be interested to run the trains at such low rates. Therefore, the argument that entry of private players will reduce costs is questionable.

Since 1991, India has experimented with public sector organisations by breaking down state monopolies, especially in telecom, aviation and media. The report argues that those experiments have been successful by citing the examples of bsnl/mtnl, Air India/Indian Airlines and Doordarshan. “In 1990, there were only five million telephones in India; in December 2014, there were 97,09,55,980 mobile phones in use, apart from landlines. As a result of competition in the telecom sector, prices came down, services improved, corruption diminished and innovation flourished,” the report says. While call tariffs did reduce, the entry of private players in the telecom sector gave rise to corruption as well.

The 2G scam is one of the largest scams in modern India. It was also a main reason for the downfall of upa-2 after a successful reign of 10 years at the Centre. Moreover, the entry of private players affected the state enterprises very badly. Everyone is very well aware of the present condition of Air India, BSNL / MTNL and Doordarshan.

“It is obvious that private players will be given preference if allowed into railway operations. It will also lead to corruption. A corporate is more likely to bribe the officials to allow private trains on the track. There will be no level playing field,” says Guman.

However, everyone is not against the privatisation of railways. A retired railway officer, who is now deputed with the finance ministry says that private investment in any domain is a welcome step. “The infusion of private capital into the railway will add value to the current system. The focus of any private enterprise, apart from making profits, is to satisfy customers’ needs. Therefore, I believe it is a welcome step and must be implemented,” says the officer requesting anonymity.


Past experiences show that the attempts to bring in private investment in the railway sector have proven to be unsuccessful. The reasons vary from high pricing to bad policy. The Bibek Debroy committee feels that the past attempts have been unsuccessful mainly because the schemes favoured Indian Railways. Therefore, in its 300-page report, the committee has continually talked about the need to bring an independent regulator which will set the rules of competition and will come into play if those rules are violated.

“The lesson here is that in the absence of an independent regulator, it is not possible to have a level playing field for private players, especially where a publicly held company under the railway ministry is one of the competitors. There are lessons to be learnt from the failed efforts. Higher costs and lower returns, policy uncertainty, lack of incentives for investors, and procedural/operational issues have significantly restricted private sector participation,” argues the report.


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